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Following the creation of Section 1030A, which replaced ESC C16 in April 2012, contractors with cash in excess of £25,000 left in their company were forced to distribute funds as income and not capital, this would incur income tax liabilities at a rate as high as 37.5%.
However, contractors can choose to close their company using an MVL. Liquidating a contractor’s company by a licensed insolvency practitioner enables cash reserves to be distributed as capital, potentially attracting a tax rate as low as 10%.
Many contractors we see are moving into a long-term permanent role or moving out of the country, thereby seeking both closure and peace of mind that any risks associated with the company, are minimised.
Alternatively, Contractors may have other financial reasons for needing use of the money more urgently, such as paying off mortgages or other personal debts. And, of course, most contractors want to avoid the costs of running a contractor limited company that isn’t trading!
Whilst a formal liquidation process requires the appointment of a licensed insolvency practioner and this inevitably entails a fee – if the company’s reserves are significant the tax saving could quite possibly outweigh the fee payable in an MVL.
We estimate that as a general rule, seeking to close a company with reserves of around £36,650, formally liquidating the company will generally yield the highest return, after having paid all taxes and professional fees.
This is based on the assumption that your income has or will during the tax year exceed the higher rate threshold and that the gain is eligible to entrepreneurs relief.
At Beacon we have developed a system that enables us to move as quickly as is required to suit your needs.
We can do the whole process via email, or in whatever way suits your requirements.
The only ‘tricky’ document as far as the client is concerned is the ‘declaration of solvency’; as this must be sworn in front of a solicitor or commissioner for oaths (there is a charge for this, by the solicitor, usually between £5-10).
We then advertise the Liquidation of the company, the appointment of the Liquidator and for any outstanding creditors to submit claims.
We then obtain post Liquidation tax clearance from HMRC, settle any outstanding liabilities of the Company. Once liquidation clearance from HMRC has been received, we convene and advertise a final meeting to be held 8 weeks later. This will conclude the Liquidation, and the Company will be struck off 3 months later at Companies House.
If the company was VAT registered, we can generally reclaim the VAT and whilst initially payable, when the vat refund is received we would pay the refund across as a distribution to shareholders.
At Beacon we do not offer different levels of service or packages - all Beacon clients receive the same high standards.
BEACON charge a fixed fee, including disbursements, from £2,000 plus VAT.